Business growth is not as easy as it sounds; its success has some conditions which come in the form of risks from time to time. If you are a business owner, risks are bound to happen. However, the nature and gravity of risks change as your business progresses.
The nature of risks can be divided into two types.
Systematic Risk and Unsystematic Risk
Systematic risk relates to the risks by the market on the whole. Unsystematic risk is associated with the dangers from within the organization or the industry it operates in.
Despite risk occurrences, businesses experience a clientele decline, followed by a sluggish revenue graph. Loss of clients depends on proposed solutions’ quickness and effectiveness after a risk. Similar is the case with experiencing a loss in revenue.
Business owners make mistakes while taking decisions regarding business growth in the short and long run. This is because they do not take into account the common risks. These risks replace industry giants because the top management considers them unworthy of attention.
Following are the five most common yet fatal risks every business should look out for:
Brand strategies are designed to beat the competition and to stay ahead in the race. A slight rush in devising brand strategies might lead to major losses and a business would become a mere laggard in the industry.
Companies often win the competition through careful positioning, segmentation, and execution of their brand strategies keeping in mind the strategies of their competitors. How is that done? The most convenient way of doing so is through a strong brand ID.
If a firm’s brand ID influences action in the customers, that firm receives a head start in the competition. With that said, organizations are investing massively in logo design services and Infini Logo Design is one of those dominating the industry. Their logo design service is one of its kind which helps the brands get the competitive edge they need.
Consider an example of FedEx, reigning the global freight forwarding market. FedEx is not only known for its services but because of its modest yet meaningful logo as well.
The logo represents an arrow between the last ‘E’ and ‘X’ indicating speedy service with precision, thus fulfilling the main aspects of a logistics brand. The color blend is also well-thought-out, purple is constant for “Fed” while the colors of “Ex” change with the product category.
FedEx’s logo proves that a subliminal logo alone has more impact on the audience than the investment it makes in marketing collaterals.
Economic conditions affect any business’s operations more than anything. For instance, the current circumstances with the outbreak of the novel Coronavirus have put the business industry at a halt. The Fast Moving Consumer Goods (FMCG) industry has suffered the most from this unexpected pandemic.
The SMEs have been affected badly by the current economic conditions as most of the businesses have either slowed down their operations or did not succumb to the never-ending impact of pandemics.
This is because neither the FMCGs nor other renowned businesses and SMEs had expected the risks. Due to the lack of planning, the loss was imminent. Keeping this precedent in mind, businesses need to forecast their sales, and how much resources they have. Businesses should also know how much capacity they have to deal with similar circumstances in the near future.
Financial and Operational Risk
When businesses transform into corporations, they get their financial resources from two main sources;
- The customers through equity financing, and
- Banks in the form of debt financing
Such financing is obtained in millions and sometimes in billions of dollars which creates a vicious circle of credit around the corporations to become obligated to pay back at a predetermined rate and time.
Organizations need to be cautious of financial risk as lack of proper planning leads to bankruptcy. The emphasis and reliance on borrowing from the market as well as customers should be limited to the extent an organization can cover in case of financial crises.
The portfolio should be diversified with multiple streams of income to keep the cash flows running. Unfortunately, even established firms fail to realize the result of ignoring financial risk as the pursuit of market leadership pushes them to the end of the race.
No matter how stringent the regulatory bodies get to stop corporate crimes, loopholes are always there to be exploited. On the contrary, sleeky escape routes from these regulations for short-term success can be costly sometimes.
The Great Depression of the 1930s and The Great Recession of 2007-08 are some of the prominent events in the business industry. Had the companies complied with the regulations, the circumstances would have been otherwise.
Due to lack of compliance, companies receive severe backlash due to the intolerable attitude towards compliance with regulations.
The question arises, what can businesses do to avoid compliance risk? Businesses need to follow the laws of federal regulatory agencies and exercise them to deal with the risks associated with compliance.
For example, In September 2020, JP Morgan Chase, one of the world’s largest financial institutions was ordered to pay $920 million in agreement with three federal agencies on allegations that JP Morgan Chase’s traders performed fake trades in the metals markets.
This was an illegal practice called “spoofing”. It was also a direct violation of the regulations described by the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), and Department of Justice.
Security and Fraud Risk
Where there’s security, there are threats too. No business will always remain successful because it will always encounter challenges. There will always be parties trying to create problems for the businesses to proceed smoothly.
Digital evolution has opened doors for data theft of customers using digital platforms. This threat is not enough to tarnish a company’s long-built relationship with the industry and its customers. But it also alarms the businesses from the financial liabilities they could face in the form of lawsuits or discipline from the regulatory bodies.
In January 2009, Heartland Payment Systems reported a breach in its database when Visa and Mastercard raised doubts on fraudulent transactions. The hackers made an SQL injection attack helping them gain access to information of more than 175,000 merchants and 134 million credit cards.
Due to this chaos in the market, Heartland had to pay an overcome compensation of $145 million to its customers for fraudulent payments.
Regardless of the improvements in the business practices, the risks and threats would always be there. It would be highly optimistic to say that the business market would be risk-free, it solely depends on the business owners how they tackle the risks ahead of them.
Design A Contingency Plan
When you know the existence of risks, staying idle would not be the solution. Carefully assessing the challenges and making a plan to overcome them would do the trick. If one plan does not work out, have another plan ready to maintain the pace of business growth.
Having a contingency plan is extremely important when studying risk management. Contingency plans help you explore your options in tight situations and find potential opportunities to get out of them.
Having a way out in emergency situations aids in lesser collateral damage than the firms having no last resort. As a result, a lot of firms have discontinued their operations in COVID-19 owing to no layers of loss coverage. However, the firms having alternative strategies were thriving.